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Combining Risk Attitudes in a Lottery Game and Flood Risk Protection Decisions in a Discrete Choice Experiment

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  • Markus Glatt

    (Eawag, Swiss Federal Institute of Aquatic Science and Technology
    Vrije Universiteit Amsterdam)

  • Roy Brouwer

    (Eawag, Swiss Federal Institute of Aquatic Science and Technology
    University of Waterloo
    Vrije Universiteit Amsterdam)

  • Ivana Logar

    (Eawag, Swiss Federal Institute of Aquatic Science and Technology)

Abstract

Decision-making about flood protection is surrounded by outcome uncertainty. In this paper we look at the influence of individual risk attitudes on flood protection decisions. To this end, we combine the results of a lottery game with the findings from a discrete choice experiment focusing on flood risk reduction measures. We find that the inclusion of non-linear probability weighting increases the explanatory power of the choice model. The result is however sensitive to behavioral assumptions about decisions under uncertainty, as well as whether the lottery was played in the loss or gain domain. Including risk attitudes in the probability weighted model decreases marginal willingness to pay for measures with a low to intermediate flood risk reduction capacity and increases marginal willingness to pay for measures with a very high flood risk reduction effect. This has important implications for the social acceptability of flood reduction measures under different baseline conditions.

Suggested Citation

  • Markus Glatt & Roy Brouwer & Ivana Logar, 2019. "Combining Risk Attitudes in a Lottery Game and Flood Risk Protection Decisions in a Discrete Choice Experiment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(4), pages 1533-1562, December.
    • Handle: RePEc:kap:enreec:v:74:y:2019:i:4:d:10.1007_s10640-019-00379-y
    DOI: 10.1007/s10640-019-00379-y
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    Cited by:

    1. Deely, John & Hynes, Stephen, 2020. "Preferences for Blue-Green or Grey Infrastructure to Reduce Flood Risk: A Choice Experiment," Working Papers 309506, National University of Ireland, Galway, Socio-Economic Marine Research Unit.
    2. Adloff, Susann & Rehdanz, Katrin, 2023. "Wait and see? Public preferences for the temporal effectiveness of coastal protection," Ecological Economics, Elsevier, vol. 204(PA).
    3. Christos Makriyannis & Robert J. Johnston & Ewa Zawojska, 2022. "Do numerical probabilities promote informed stated preference responses under inherent uncertainty? Insight from a coastal adaptation choice experiment," Working Papers 2022-05, Faculty of Economic Sciences, University of Warsaw.
    4. Jing Huang & Weiwei Cao & Huimin Wang & Zhiqiang Wang, 2020. "Affect Path to Flood Protective Coping Behaviors Using SEM Based on a Survey in Shenzhen, China," IJERPH, MDPI, vol. 17(3), pages 1-17, February.
    5. Toledo-Gallegos, Valeria M. & My, Nguyen H.D. & Tuan, Tran Huu & Börger, Tobias, 2022. "Valuing ecosystem services and disservices of blue/green infrastructure. Evidence from a choice experiment in Vietnam," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 114-128.

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    More about this item

    Keywords

    Lottery game; Choice experiment; Flood risk; Bayesian model averaging; Risk attitudes;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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